It’s reported that India is soon to announce an extension of its sugar export subsidy for the 2020-21 marketing year. The subsidy was Rupees 10,448 ($142.20) per tonne during the 2019-20 season, which concludes at the end of September. This subsidy helped sugar mills to export a record 5.5m tonnes.
The aim of the subsidy is to make sure that exports stay around 5m tonnes and maintain domestic prices so they do not fall below a benchmark price which is fixed by the government. A collapse in local prices would make it more difficult for sugar mills to pay sugarcane growers on time.
India will start the new marketing year with around 11.5m tonnes of carryover sugar stocks and - thanks to an excellent monsoon this year - will produce around 31m tonnes of sugar in 2020-21, with local demand of some 26m tonnes.
Will India’s determination to export such a large volume of sugar affect the global balance - and influence prices?
Brazil the biggest exporter
Raw sugar futures on ICE started this year at 14.32 cents per pound and slid below 10 cents in the worst days of the Covid-19 lockdowns. The front-month contract has since recovered and today traded at 11.93 cents per pound.
A Reuters poll of eleven traders and analysts at the end of July gloomily agreed that the price would end this year at 12 cents per pound, 11% below the price at the end of 2019. That poll additionally forecast a global sugar surplus of 3.5m tonnes for the 2020-21 season. A similar Reuters poll conducted in January this year saw the end-2020 price at 15 cents per pound on an estimated global deficit then of 1.15m tonnes for 2020-21.
Since then however the International Sugar Organization (ISO) has come out with its latest quarterly market outlook, for August, which not only revised its estimates for 2019-20 - "the global balance has consequently moved from being the biggest deficit in 11 years to neutral" it said, but also estimated for 2020-21 a narrow deficit of 724,000 tonnes.
For 2020-21 the dominance of India and Brazil in terms of production "is at a 10-year high" said the ISO. Sugar global export availability for 2020-21 is expected by ISO to be 60.218m tonnes (against 60.755m tonnes in 2019-20) and world import demand is put at 60.301m tonnes. Brazil is seen as having net exports of 26.234m tonnes, while India will be around 5m tonnes.
Demand will outpace supply
The very tight statistical global balance the ISO expects for 2020-21 leaves plenty of room for further revisions later this year. Brazil’s recovery from the consequences of Covid-19 is perhaps the biggest game-changer. This year there has been what the ISO calls a "massive shift" to sugar production in Brazil and away from ethanol. A recovery in crude oil prices will help reverse that.
India’s government is also backing greater fuel ethanol production partly as a way of soaking up abundant sugar stocks. Even with India subsidising the export of 5m tonnes in 2020-21 that may not be enough to keep up with global needs. Fuel ethanol production in Brazil - where mills can change swiftly from sugar processing to ethanol putpt - is bound to pick up by early 2021.
Given low sugar output in other origins, such as drought-stricken Thailand, we remain confident that the January poll which put the price at 15 cents per pound by the end of 2020 - which would be a rise of just 4.7% since the start of 2020 - remains closer to the mark.